EUR/USD trims week’s earlier gains

Surprisingly, the US NFP numbers were far higher than anticipated. It is improbable that an additional rate decrease will follow the ECB rate cut. The European Central Bank (ECB) President Christine Lagarde issued a warning that a follow-up rate drop to June’s quarter-point rate trim may not be in the cards, which caused the EUR/USD pair to plunge significantly on Friday.

The US Nonfarm Payrolls witnessed a little downward revision to 165K from the initial print of 175K the previous month, but in May, they added 272K net new jobs, considerably over the 185K projection. The US Average Hourly Earnings exceeded forecasts as well, with salaries expanding at a faster rate than investors had projected—that is, at a MoM rate of 0.4% as opposed to the estimated increase to 0.3% from 0.2%.

Although the US unemployment rate increased slightly to 4.0%, thoughts of a broad-market rate cut to end the trading week were severely derailed by the country’s ongoing tight labour market and growing wages. Rate traders are pricing in 51% odds of no rate drop at all in September, down sharply from 70% odds of at least a quarter-point trim on September 8 that were placed in before Friday’s NFP reading, according to the CME’s FedWatch Tool.

ECB President Christine Lagarde dampened expectations for a follow-up rate cut in July, despite the ECB delivering a much-needed rate cut this week. She noted that inflation progress has been choppy and that the ECB will need to see firmer progress on disinflation before committing to further rate cuts. Euro bulls expecting for a late-session rally to close off the trading week were hindered by a hawkish, or more accurately, not-dovish, statement from the chairman of the ECB.